Finance terms compared side by side
- Comparisons
- 112
- Guides
- 216
- Calculators
- 132
- Worked examples
- 1,307
The pairs people mix up, each answered in a sentence and then laid out in a table. The table is the shape an answer engine lifts whole.
Start with a checked figure
- Gross against net pay$1,607 take-home
- Snowball against avalanche$296.37
- Simple against compound150% vs 332%
- Monthly against continuous8.3000% vs 8.3287%
- PMI against 20 percent down$23,560
- Debt-to-equity against debt-to-assets1.67 / 62.50%
- Current against quick ratio1.50 / 1.10
- Enterprise value against equity$130,000,000
- HELOC against a home equity loan$333.33 a month
- I bond against TIPS4.218% / $1,061.21
- Claiming at 62 against 70$1,642.06 / $2,908.79
- Bracket against effective rate22% / 13.6%
- FDIC against SIPC$30,000 uninsured
Pay and household
Gross pay vs net pay
Gross pay is the wage before deductions. Net pay is take-home after FICA and withholding. Same check, two numbers, and why they are not interchangeable.
Debit vs credit card: whose money moves
A debit card spends money you already hold; a credit card borrows it. What that changes about US fraud rules, credit utilisation, and the cost of carrying a balance.
Saving vs investing: horizon and risk
Saving holds the nominal amount steady, investing accepts falls for a higher expected return. How horizon, volatility, access and purpose sort money between them.
Debt snowball vs avalanche
Avalanche pays the highest rate first. Snowball pays the smallest balance first. On two cards and a \$500 budget, avalanche saves \$296.37 of interest over the same 19 months.
401(k) vs IRA: workplace against personal
A 401(k) is a workplace plan and an IRA is one you open yourself. How the contribution cap, the employer match, access and investment choice differ under US rules.
Roth vs traditional retirement accounts
Roth is taxed now, traditional is taxed later. If your rate is the same at both ends the two are identical, so the choice is a bet on your future rate.
4 percent vs 3 percent SWR
A FIRE number is spending over the withdrawal rate. \$60,000 a year at 4 percent is \$1,500,000. At 3 percent it is \$2,000,000. Same spending, a thicker pile, a longer wait.
Ordinary annuity vs annuity due
An ordinary annuity pays at the end of each period. An annuity due pays at the start. Same \$500 a month for 20 years at 6 percent: \$231,020.45 against \$232,175.55.
HSA vs FSA
An HSA can roll unused amounts and may be invested. A typical health FSA is use-it-or-lose-it within the plan year, with only a limited carry or grace if the plan allows one.
529 plan vs UTMA account
A 529 plan is an education savings wrapper with beneficiary and qualified-expense rules. An UTMA account is a custodial gift that becomes the child's property at the age the state names.
RMD vs Roth IRA lifetime rules
A traditional IRA has a lifetime required minimum distribution. A \$530,000 balance with a 26.5 factor is a \$20,000 minimum. A Roth IRA has no lifetime RMD for the original owner.
Tax bracket vs effective tax rate
A bracket is the rate on a slice, and on the next dollar. Effective rate is total tax over the named base. On \$60,000 the stacked bill is \$8,160, or 13.6 percent.
Term life vs whole life
Term life pays a death benefit if death occurs during a stated term. Whole life keeps lifelong cover and builds a cash-value account inside the policy. They are different contracts.
Social Security at 62 vs 70
Claiming 60 months early multiplies PIA by 0.70. Waiting 36 months after full retirement age multiplies it by 1.24. On \$2,345.80 those are \$1,642.06 and \$2,908.79.
Coast FIRE vs regular FIRE
Regular FIRE is the pot you can live off now. Coast FIRE is the smaller pot that grows into it untouched: \$200,000 at 7 percent reaches \$773,936.89 in 20 years.
High-yield savings vs a CD
Both compound the same way. A CD fixes the rate: \$10,000 at 4.5 percent for five years reaches \$12,461.82. A savings account that averages 4 percent reaches \$12,166.53.
Short-term vs long-term capital gains
A \$15,000 gain taxed at 15 percent costs \$2,250. The same gain at a 22 percent ordinary rate costs \$3,300, and the only difference is the holding period.
Rates and compounding
APR vs APY: nominal rate against yield
Under US rules an APR skips compounding and an APY includes it. What each rate covers, which one carries fees, why the label means something else abroad.
Simple interest vs compound interest
Simple interest pays on the original sum only. Compound interest pays on the balance as well. Both formulas, and how far apart they drift over ten, twenty and thirty years.
Monthly vs continuous compounding
Monthly compounding is a finite schedule. Continuous compounding is the ceiling that schedule approaches. At 8 percent, monthly is 8.3000 percent and continuous is 8.3287 percent on \$25,000.
Rule of 72 vs exact doubling time
The rule of 72 divides 72 by the annual rate. Exact doubling is ln 2 over ln(1+r). At 7 percent they read 10.2857 years and 10.2448 years, about 15 days apart.
Arithmetic vs geometric return
An arithmetic return averages the yearly percentages. A geometric return, the CAGR, is the rate the money actually grew at. Up 60 percent then down 37.5 percent: 11.25 percent against 0.
Nominal vs real return: the difference
Nominal return counts currency, real return counts what it buys. The Fisher relation, why subtracting inflation misses in both directions, and when each figure is the one to use.
Money-weighted vs time-weighted return
Money-weighted return is the IRR of dated cash flows. Time-weighted return is the CAGR of one unit of money. The two teaching sheets are different on purpose: one has cash flows, the other does not.
Total return vs CAGR
Total return is one window: \$100 to \$105 plus \$3 is 8 percent. CAGR is the yearly root on a different sheet: \$10,000 to \$18,000 over 6 years is 10.29 percent a year.
Price return vs income yield
Price return is the finish minus the start, over the start. Income yield is cash over the start. A \$100 holding that ends at \$105 and pays \$3 is 5 percent from price and 3 percent from income.
Borrowing and home
15-year vs 30-year mortgage payments
A 15-year mortgage is 180 monthly payments and a 30-year is 360. How the payment, the interest total and the rate differ, and why the longer loan can still be prepaid.
PMI vs a 20 percent down payment
Under 20 percent down, conventional PMI is charged until LTV hits 80 percent. On a \$400,000 home with \$20,000 down that is \$190 a month for 124 months. At 20 percent down, months of PMI is 0.
Mortgage points vs no points
One point on a \$400,000 loan is \$4,000 at closing. Cutting 6.75 percent to 6.50 percent over 30 years saves \$66.12 a month, so the points take 60.5 months to recover in cash.
Fixed vs variable rate: who carries what
A fixed rate moves the risk of a rise onto the lender and keeps the cost of a fall with you. What caps and floors do, what the premium buys, and when each fits.
Secured vs unsecured loan: the difference
A secured loan is backed by an asset the lender can seize. An unsecured loan is backed only by a promise to repay. Why the rates differ and what default costs.
Front-end vs back-end DTI
The back-end test caps all monthly debt. The front-end test caps housing alone. On \$9,000 a month they lend \$430,333.43 and \$319,585.86. Both have to pass.
LTV vs DTI
Loan-to-value is the loan over the property. Debt-to-income is payments over pay. A \$400,000 home with \$20,000 down is 95 percent LTV. Debts of \$2,400.17 on \$7,500 of pay are 32 percent DTI.
Home equity vs loan-to-value
Home equity at purchase is the down payment. LTV is the loan over the price. On a \$400,000 home with \$20,000 down they read \$20,000 and 95 percent, two views of one closing.
HELOC vs home equity loan
A HELOC is a revolving line. A home equity loan is a lump sum. On a \$50,000 drawn HELOC at 8 percent, the interest-only charge is \$333.33 a month.
Escrow vs paying tax yourself
Escrow splits annual tax and insurance into monthly deposits. \$6,000 of tax plus \$1,800 of insurance is \$650 a month. Without escrow those bills are still \$7,800, paid when due.
Margin vs cash brokerage account
A cash account buys with cash on hand. A margin account adds a broker loan. \$10,000 at a 50 percent initial margin supports \$20,000 of buying power and \$10,000 borrowed.
Lease vs buy a car
Leasing a \$30,000 car over 36 months costs \$393.33 a month. Financing the same car at 6.5 percent costs \$586.98 and ends with a car you own.
Biweekly vs monthly mortgage
Half a mortgage payment every two weeks is 26 half payments a year, not 24. On a \$250,000 loan at 6.5 percent that saves \$73,434.82 of interest.
PITI vs principal and interest
Principal and interest on a \$250,000 loan at 6.5 percent is \$1,580.17. Add \$500 of tax and \$150 of insurance and the real payment is \$2,230.17.
Interest-only vs amortising loan
On \$400,000 at 6.5 percent, interest only costs \$2,166.67 a month and never repays a cent. Amortising costs \$2,528.27 and leaves \$339,104.51 after ten years.
Money factor vs APR
A money factor is an APR divided by 2400. A quote of 0.00125 is 3 percent, and 0.0025 is 6 percent, which is why lease rates look small until converted.
Investing vehicles
Index funds vs active funds: cost and odds
How index funds and active funds differ on fees, turnover and tax, why active investors as a group earn the market return minus their costs, and what persistence shows.
ETF vs mutual fund: what actually differs
How an ETF and a mutual fund differ: a price all day against one a day, in-kind redemption, the spread you pay to trade, and how narrow the tax gap really is.
Stocks vs bonds: ownership against lending
A stock is ownership and a bond is a loan. How that sets who gets paid first when an issuer fails, how each behaves in inflation, and where the two stop differing.
Taxable vs tax-exempt yield
Tax-equivalent yield is the taxable quote that matches a tax-exempt yield after tax. A 3.50 percent municipal at a 32 percent federal rate equals 5.15 percent taxable.
I bond vs TIPS
I bonds credit a composite rate from a fixed rate and a twice-yearly inflation rate. TIPS move principal with prices and pay a fixed coupon on that principal.
FDIC vs SIPC coverage
FDIC covers eligible bank deposits. SIPC covers missing securities at a failed broker. \$280,000 against a \$250,000 FDIC cap leaves \$30,000 uninsured.
Call option vs put option
A long call is the right to buy. A long put is the right to sell. At expiry a \$60 spot against a \$55 strike and \$2 premium yields \$3 of call profit. A put uses strike minus spot.
Graham number vs market price
The Graham number is a valuation ceiling from earnings and book value. With \$2 of EPS and \$20 of book value it is \$30, against a \$42 quote.
Multiples and yield
P/E vs earnings yield
P/E is price over EPS. Earnings yield is the reciprocal: 1 over P/E. A \$50 share on \$2.50 of earnings is 20 times and a 5 percent yield. Same sheet, flipped.
P/E vs PEG ratio
P/E is price over EPS. PEG is that multiple over expected growth points. A \$50 share on \$2.5 of earnings growing at 10 percent is a P/E of 20 and a PEG of 2.
P/E vs price to book
P/E divides price by a year's earnings. P/B divides the same price by book value per share. A \$50 share on \$20 of book is 2.50 times on \$5,000,000,000 of market cap.
P/E vs price to sales
P/E divides price by earnings. P/S divides the same price by sales per share. A \$50 share on \$25 of sales is 2 times on \$5,000,000,000 of market cap.
P/E vs EV/EBITDA
P/E prices the residual claim. EV/EBITDA prices the operations. A \$50 share on \$2.50 of earnings is 20 times. \$130,000,000 of EV on \$10,000,000 of EBITDA is 13 times. Different firms.
PEG vs price to book
PEG is P/E over expected growth points. A \$50 share on \$2.50 of earnings growing at 10 percent is a PEG of 2. P/B on the same \$50 and \$20 of book is 2.50 times.
Price to book vs price to sales
P/B and P/S can share a \$50 price and 100,000,000 shares. Book of \$20 is a P/B of 2.50. Sales of \$25 is a P/S of 2. Same price and count, two denominators.
Trailing P/E vs forward P/E
Trailing P/E uses the last twelve months of reported earnings. Forward P/E uses estimates for the year ahead. A \$50 share is 20 times on \$2.50 trailing and 10 times on \$5.00 forward.
Dividend yield vs earnings yield
Dividend yield is cash paid over price. Earnings yield is profit over price. A \$2.00 dividend on a \$41.60 price is 4.81 percent trailing. A \$50 share on \$2.50 of EPS yields 5 percent.
Income yield vs dividend yield
Income yield is cash in the window over the start. \$3 on a \$100 holding is 3 percent. Dividend yield is annual dividend over price, a different firm and a different sheet.
FCF yield vs earnings yield
FCF yield is 5 percent on \$55,000,000 of cash over \$1,100,000,000 of cap. Earnings yield is 5 percent on a \$50 share and \$2.50 of EPS. Different firms.
FCF yield vs dividend yield
FCF yield is unlevered free cash flow over market cap, 5 percent on \$55,000,000 over \$1,100,000,000. Dividend yield is cash over price on a different teaching sheet.
Payout ratio vs dividend yield
Payout is 40 percent on \$18,000 of dividends over \$45,000 of profit. Dividend yield is cash over price: a \$2.00 dividend on a \$41.60 Gordon price is 4.81 percent trailing.
Payout ratio vs retention ratio
Payout and retention split one residual. On \$18,000 of dividends and \$45,000 of profit, payout is 40 percent and retention is 60 percent. They add to 100.
Sustainable growth vs PEG growth
Sustainable growth is ROE times retention, 9 percent on \$45,000 of profit and \$300,000 of equity. PEG's 10 is an expected EPS growth input on a different sheet.
Market cap vs enterprise value
Market cap is price times shares. Enterprise value is equity plus net debt. They are different claims. The P/E sheet is a \$5,000,000,000 cap. The EV sheet is a different firm.
Deals and cash
Enterprise value vs equity value
Equity is the residual claim. Enterprise value adds debt and subtracts surplus cash. On \$100,000,000 of equity, \$40,000,000 of debt and \$10,000,000 of cash, EV is \$130,000,000.
EV/EBITDA vs EV/sales
EV/EBITDA and EV/sales share one numerator. On \$130,000,000 of EV, \$10,000,000 of EBITDA is 13 times and \$65,000,000 of sales is 2 times.
EV/sales vs price to sales
EV/sales on a \$130,000,000 operations sheet is 2 times \$65,000,000 of sales. P/S on a different firm is \$5,000,000,000 over \$2,500,000,000, also 2. Same 2, different claims.
NPV vs IRR: a value against a rate
NPV and IRR discount the same cash flows, but one answers in money and the other in a rate. Where they agree, where IRR breaks, and which one decides.
Payback period vs NPV
Payback is the date the outlay is back. NPV is what every year is worth today. A \$60,000 machine returning \$18,000 a year pays back in 3.33 years and has an NPV of \$8,234.16 at 10 percent.
Discounted vs plain payback
Plain payback treats a dollar in year 4 as a dollar today. Discounted payback charges for the wait. A \$60,000 machine returning \$18,000 a year prints 3.33 years and 4.26 years.
Profitability index vs NPV
PI is present value of inflows over the outlay. NPV is the surplus. At 8 percent the inflows are \$11,978.13, PI is 1.20, and NPV is \$1,978.13. Same surplus, as a ratio and as money.
Gordon growth vs two-stage DCF
Gordon growth is one perpetuity. Two-stage DCF is a forecast plus a Gordon tail. A \$2.00 dividend at 4 percent growth is worth \$41.60. Five years of \$100,000 at 10 percent is worth \$1,292,720.05.
WACC vs cost of equity
WACC blends equity and after-tax debt. Cost of equity is the equity rate alone. On \$6,000,000 at 9 percent and \$4,000,000 at 5 percent, taxed at 25 percent, they read 6.9 percent and 9 percent.
NOPAT vs net income
NOPAT is EBIT after tax, before interest. Net income is profit after interest and tax. On the ROIC sheet NOPAT is \$75,000,000. On the ROE sheet net income is \$15,000,000. Different firms.
EBIT vs EBITDA
EBIT is operating profit before interest and tax. EBITDA adds depreciation and amortisation back. On \$100,000,000 of EBIT and \$20,000,000 of D&A, EBITDA is \$120,000,000. Neither figure is cash.
EBITDA vs free cash flow
EBITDA is EBIT plus D&A. Free cash flow has paid tax, capex and working capital. On the teaching sheet they read \$120,000,000 and \$55,000,000, and they are not substitutes.
Cap rate vs implied value
Cap rate is NOI over price. Implied value is NOI over a comparison cap. \$36,000 on a \$480,000 ask is 7.50 percent, and \$600,000 at a 6 percent cap.
Net debt vs gross debt
Gross debt is the interest-bearing balance. Net debt subtracts surplus cash. On \$40,000,000 of debt and \$10,000,000 of cash, net debt is \$30,000,000 and enterprise value is \$130,000,000.
Annuity present vs future value
\$1,000 a year for ten years at 6 percent is worth \$7,360.09 today and \$13,180.79 at the end. Same payments, two valuation dates.
After-tax vs pre-tax return
A quoted 8 percent return is pre-tax. At a 22 percent rate it is 6.24 percent in the hand, and at 37 percent it is 5.04 percent. Only one of those is yours.
NOI vs cash flow on a rental
Net operating income stops before the mortgage. On rent of \$48,000 with \$2,400 of vacancy and \$9,600 of expenses, NOI is \$36,000 whoever owns the debt.
Cap rate vs DSCR
Cap rate divides NOI by price and answers what the property yields. DSCR divides NOI by debt service and answers whether the loan is safe: \$36,000 over \$24,000 is 1.5.
Leverage and coverage
Debt-to-equity vs debt-to-assets
Debt-to-equity is debt over equity. Debt-to-assets is debt over assets. On \$800,000 of assets and \$500,000 of debt they read 1.67 and 62.50 percent, one sheet, two formulas.
Operating vs financial leverage
Operating leverage is fixed costs in the cost base. Financial leverage is debt on the balance sheet. One multiplies a change in sales into profit. The other multiplies a change in assets into equity.
DOL vs degree of financial leverage
DOL is contribution over EBIT, on the break-even sheet. DFL is EBIT over EBIT minus interest, on the coverage sheet. A DOL of 3 and a DFL of 1.14 are different firms. Do not multiply them.
Interest coverage vs DFL
Interest coverage is EBIT over interest. DFL is EBIT over EBIT minus interest, which is coverage over coverage minus one. On \$80,000,000 against \$10,000,000 they read 8 times and 1.14.
Unlevered vs levered beta
Levered beta is the equity beta. Unlevered beta strips financial leverage out, assuming debt beta is zero. An equity beta of 1.2 at 25 percent tax and D/E of 0.5 is an asset beta of 0.8727.
ROE vs ROIC
ROE is net income over book equity. ROIC is NOPAT over invested capital. Same firm, two rates, and why a recapitalisation can lift one without moving the other.
ROA vs ROE
ROA is net income over assets. ROE is net income over equity. On \$45,000 of profit, \$800,000 of assets and \$300,000 of equity they read 5.625 percent and 15 percent. The gap is the multiplier.
Sortino ratio vs Sharpe ratio
Both divide excess return by risk. Sharpe uses total volatility, Sortino uses downside deviation only, so upside swings stop counting as risk.
Working capital
Current ratio vs quick ratio
The current ratio is current assets over current liabilities. The quick ratio takes inventory out first. On \$600,000 of current assets and \$400,000 of bills they read 1.50 and 1.10.
Cash ratio vs quick ratio
The cash ratio is cash over current liabilities. On \$200,000 of cash and \$400,000 of bills it is 0.50. The quick ratio on a wholesaler sheet is 1.10 after inventory comes out.
Cash ratio vs current ratio
The cash ratio is cash over current liabilities. On \$200,000 of cash and \$400,000 of bills it is 0.50. The current ratio on a wholesaler sheet is 1.50 from \$600,000 of current assets.
Working capital vs current ratio
Working capital is current assets minus current liabilities. The current ratio is the same comparison as a multiple. On \$600,000 against \$400,000 they read \$200,000 and 1.50.
Operating cycle vs cash conversion cycle
The operating cycle is DSO plus DIO. CCC subtracts DPO. 45 plus 60 is 105 days. Minus 30 is 75 days. A negative CCC can sit under a still-positive operating cycle.
DSO vs DIO in the cash cycle
DSO is how long customers take to pay. DIO is how long stock sits. 45 plus 60 is a 105 day operating cycle. Minus 30 days of payables leaves a 75 day cash conversion cycle.
DSO vs DPO
DSO is how long customers take to pay. DPO is how long the firm takes to pay suppliers. 45 against 30 leaves the firm funding the gap. 30 against 100 is how CCC goes negative.
DSO vs receivables turnover
Receivables turnover is 365 divided by DSO. A DSO of 45 is 8.11 turns. Same clock, a wait against a turns figure. Mixing 365 with 360 is a fake ranking.
DPO vs payables turnover
Payables turnover is 365 divided by DPO. A DPO of 30 is 12.17 turns. Same clock, a wait against a turns figure. Ranking turns high to low is the opposite of ranking CCC low to high.
Inventory turnover vs days inventory
Inventory turnover is 365 divided by DIO. A DIO of 60 is 6.08 turns. Same clock, a wait against a turns figure. Mixing 365 with 360 is a fake ranking.
Margins
Gross margin vs net profit margin
Gross margin is gross profit over sales, 35 percent on the wholesale sheet. Net margin is net income over sales, 9 percent on the DuPont sheet. Different firms. Do not paste one onto the other.
Gross margin vs contribution margin
Gross margin is a statement ratio: \$700,000 over \$2,000,000 is 35 percent. Contribution margin is a per-unit identity: \$35 minus \$20 is \$15, so break-even is 1,600 units.
Operating margin vs net margin
Operating margin is 20 percent on \$100,000,000 of EBIT over \$500,000,000 of sales. Net margin is 9 percent on \$45,000 over \$500,000. Different firms.
Operating vs EBITDA margin
Operating margin is EBIT over sales. EBITDA margin adds D&A back. On \$100,000,000 of EBIT, \$20,000,000 of D&A and \$500,000,000 of sales they read 20 percent and 24 percent.
Operating vs gross margin
Operating margin is EBIT over sales, 20 percent on \$100,000,000 over \$500,000,000. Gross margin is gross profit over sales on a different firm, 35 percent on the wholesale sheet.
Bonds
Current yield vs yield to maturity
Current yield is the annual coupon over the price. Yield to maturity is the discount rate that prices every remaining payment. On a \$857.88 bond they read 5.83 percent and 7 percent.
Current yield vs coupon rate
Coupon rate is the annual coupon over face value. Current yield is the same cash over the price you pay. They match at par and split once the price leaves \$1,000.00.
Discount vs premium bond
Discount bonds price below face when the market rate sits above the coupon. Premium bonds price above face when it sits below. Same 5 percent ten-year: \$857.88 at 7 percent, \$1,171.69 at 3 percent.
Bond duration vs maturity
Maturity is when face is repaid. Macaulay duration is the present-value-weighted wait for every cash flow. A 5-year par bond has maturity of 5 years and duration of 4.55 years.
Macaulay vs modified duration
Macaulay duration is a present-value-weighted wait. Modified duration is that wait divided by 1 plus the periodic yield. On a 5-year par bond they are 4.55 and 4.33 years.